20-lecture 7-2010 Costs -...

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Spring 2010 - ÇG IE 398 Lecture 7 1 lecture 7 : costs and time this lecture is about how to handle costs and  dynamic aspects in hard-OR models types of costs  costs that are relevant to decision making case example
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Spring 2010 - ÇG IE 398 Lecture 7 2 types of costs a first classification: explicit   costs : out-of-pocket costs involving an actual  transfer of funds  (eg. payrol costs, purchasing costs etc.) implicit   costs : no funds change hand  (eg. depreciation,  cost of reduced productivity, goodwill loss etc.) implicit costs that are relevant to OR decisions are called  intangible costs (eg. depreciation is not relevant to decision  making but goodwill cost is)   implicit costs that are shown in the balance sheet are also  known as  intangible costs from an accounting point of  view , but these are not relevant to OR  (eg. depreciation or  intangible asset value reduction concerning reserves for bad debts  or acquired assets that exceed purchase cost)
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Spring 2010 - ÇG IE 398 Lecture 7 3 a second classification accounting costs  as summarised in balance sheets  and income statements direct costs  which can be variable (ie.changing with the  level of output) or fixed  (eg. depreciation of a machine that is  dedicated to a certain product remains independent of output and is  fixed) indirect costs  or  overheads  which are essentially  joint   costs  of production; overhead can change with output also,   but it will remain fixed over wide intervals   economic costs  are  opportunity   costs  (or  shadow   prices ) ie. the implicit cost of a resource calculated as  forgone benefits from the best alternative activity  that the resource could have been used for variable costs  that change in the short-run fixed costs  that change only in the long-run
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Spring 2010 - ÇG IE 398 Lecture 7 4 Max 90 xA + 60 xB subject to 2xA + xB < 8 xA < 3 xB < 4  OBJECTIVE FUNCTION VALUE         1)      420.0000   VARIABLE        VALUE          REDUCED COST         XA         2.000000          0.000000         XB         4.000000          0.000000        ROW   SLACK OR SURPLUS     DUAL PRICES         2)         0.000000         45.000000         3)         1.000000          0.000000         4)         0.000000         15.000000
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Spring 2010 - ÇG IE 398 Lecture 7 5 Max 90xA + 60xB subject to 2xA + xB < 7 xA < 3 xB < 4         OBJECTIVE FUNCTION VALUE         1)      375.0000   VARIABLE        VALUE          REDUCED 
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20-lecture 7-2010 Costs -...

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